Global Publishing Leaders 2012: Houghton Mifflin Harcourt

Jun 25, 2012

About:

HMH is one of the world’s largest providers of educational products and solutions for pre-K–12 learning. Ninety percent of the company's revenu with 90% of revenue from education, with the remaining 10% from reference and trade. HMH is an innovator in the digital school-home market, offering blended and all-digital offerings such as HMH Fuse™, Write Source®, Singapore Math, Bar Models, and SkillsTutor, which help assess, extend and enhance classroom learning.

Houghton Mifflin’s history as an educational publisher goes back to 1832. In 2006, Houghton Mifflin was acquired by the Irish company Riverdeep, which was started by ex-banker Barry O'Callaghan. By the end of 2007, it acquired Harcourt from Reed Elsevier.

Key company developments in 2011 & 1st half year 2012

Financial:

In May 2012, HMH voluntarily filed for a pre-packaged bankruptcy in order to achieve a second major restructuring of $3 billion of its debt load, eliminating also $250 million in annual debt services. In a letter to employees, it was added that no layoffs were planned, and the “process would have no impact on our day-to-day operations” (CEO Linda K. Zecher). Seventy percent of HMH’s lenders and bond holders approve of the plan.

With sales just short of $1.3 billion and an EBITDA of $238m for 2011, the company is smaller than it was prior to Riverdeep and the acquisition of Harcourt's educational and trade assets. In 2005, the last full year in which it stood as a separate company, HM had sales of $1.4 billion and EBITDA of $392 million.

Ownership, mergers & acquisition, internal organization:

In November 2011, HMH hired Linda K. Zecher as president, CEO and director. Zecher, a former corporate VP at Microsoft, where she ran the company’s $8 billion worldwide public sector business, reorganized HMH's internal structure by eliminating separate divisions for education and emerging markets.

International:

n/a

Digital:

HMH brings an engaging, individualzed learning experience to the consumer market on an increasing variety of platforms. Curious George at the Zoo for iPhone®, iPad®, and iPod touch® builds critical skills for pre-school children; Number Stax offers valuable math fundamentals practice on the iPad®; and Carmen Sandiego Adventures in Math, a series of engaging games based on the iconic children's character, is available for both Nintendo Wii and Microsoft Windows 8.

Bestselling authors & titles:

HMH is focused on reaching parents and students with fun and engaging products that build upon the skills and lessons taught in the classroom and at home. By combining award-winning instructional content and beloved children's fiction characters (such as Curious George and Carmen Sandiego), they have created entertaining social games, mobile apps, and other offerings that are rich in educational content yet highly immersive and fun for the whole family.

In addition to education solutions, HMH is responsible for nearly two centuries-worth of award-winning novels, children’s books and magazines. Beyond the works of J.R.R. Tolkien, The Best American Series®, The Peterson Field Guides® and The Gourmet Cookbook, they publish works of fiction, science, sports, history, and current affairs. Notable fiction authors include Philip Roth, Jhumpa Lahiri, and Jonathan Safran Foer, and the nonfiction list features seminal works by Winston Churchill, John Kenneth Galbraith, Jane Goodall, Eric Schlosser, James Carroll, and Richard Dawkins. Poets include former laureate Donald Hall, Galway Kinnell, and Natasha Trethewey, winner of the 2007 Pulitzer Prize.

Amazon.com has struck a print licensing agreement with Houghton Mifflin Harcourt, which will allow HMH to print and distribute titles from the internet giant's East Coast Group adult imprint. HMH has set up an imprint, New Harvest, to publish the titles when they are launched in fall 2012, with titles from Deepak Chopra, Tim Ferriss, and James Franco. The books will be distributed in North America, outside from Amazon's e-commerce site.

Key points for analysis & conclusions:

The huge debt load and resulting restructurings had been a constant feature of HMH operations since at least 2008. Limitations in public spending on textbooks and other learning materials in the US have added to the pressure.

The pre-packaged chapter 11 filing, as announced by May 2012, has been welcomed by a majority of creditors.

Earlier developments:

2010: Houghton Mifflin Harcourt, one of the largest US educational publishers, struggled for the second year over a huge debt of $7 billion, derived mostly from a merger with Education Media & Publishing Group (EMPG, formerly Riverdeep), a company helmed by Irish entrepreneur Barry O’Callaghan.

2009: After reports of an imminent collapse of EMPG by year’s end of 2009, CEO Barry O'Callaghan and Reed Elsevier engineered a financial shake up, converting, as the Financial Times reported, “EMPG's $5bn in first lien debt and all of the $2bn second lien loans to equity," which wiped out much of the shareholders’ stake. “The process has been driven in part by Paulson & Co, John Paulson's hedge fund, which has bought up EMPG debt and is expected to emerge as its main shareholder, ahead of Apollo, BlackRock and Guggenheim Partners, with board representation and more than 30 per cent of equity“ (Financial Times, January 14, 2010). On March 10, 2010, HMH announced that it had completed its re-capitalization, with debt levels reduced by 60%.

In February 2009, HMH CEO Tony Lucky announced his retirement and will be replaced by O’Callaghan. Lucky, CEO of HM since 2003, oversaw the integration of Harcourt after its purchase from Reed Elsevier.

2007 was a watershed year for Houghton Mifflin Harcourt (formerly Houghton Mifflin Riverdeep) in its restructuring and expansion as one of the leading providers of learning materials notably in the USA.

Education Media and Publishing Group Limited, the parent company of Houghton Mifflin Harcourt, resulted from Houghton Mifflin Riverdeep with the acquisition of Harcourt Education, Harcourt Trade and Greenwood-Heinemann from Reed Elsevier in December 2007 for ca. $4 million, making it the industry leader in its segment.

Houghton Mifflin acquired and integrated Harcourt Education from Reed Elsevier, and projected to sell offf its College Division to Cengage.

Note: Figures are based on sales generated in calendar 2011 or—for corporations with a fiscal year—from fiscal 2011. Data are from publicly available sources and include sales of books, journals, and digital products. Because publishing data were unavailable, Pannini and Disney/Hyperion are excluded from the rankings. The listing and publisher profiles were compiled by international publishing consultant Rudiger Wischenbart under the aegis of Livres Hebdo.

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